His company hopes to help convert waste gases from industrial steel production into a jet propuslion that could ultimately account for nearly a fifth of the present annual global consumption of aviation fuel.

A demonstration flight is planned within 12-18 months, the airline announced on Tuesday.

Branson said: “With oil running out, it is important that new fuel solutions are sustainable and, with the steel industry alone able to deliver over 15bn gallons of jet fuel annually, the potential is very exciting.

“This new technology is scalable, sustainable and can be commercially produced at a cost comparable to conventional jet fuel.”

On his blog, Branson claimed: “This could turn aviation from a dirty industry to one of the cleanest … Within three years we aim to fly Virgin Atlantic planes with the new fuel on flights from Shanghai to London and Delhi to London, and to follow this with operations in the UK and the rest of the world.”

The technology is being trialled in New Zealand with a larger demonstration plant being commissioned in Shanghai and the first commercial operation expected in China in 2014.

Virgin has admitted that the coconut experiment was never likely to be developed commercially and had been done to prove to sceptics that it was possible to develop alternatives to aviation fuel.

LanzaTech estimates the new recyling process could apply to 65% of the world’s steel mills and could also be used in other metal processing and chemical industries. “We are confident that we will have a facility with the capacity to produce fuel for commercial use by 2014,” said Jennifer Holmgren, its chief executive.

FoE’s transport campaigner, Richard Dyer, said: “On the face of it, it does look promising in that they are getting round the issues of biofuels and land use. It is a very long way from commercial use. It has got to be very safe and cheap enough for airlines to be interested in using it.”

He also pointed out Virgin had lobbied for airport expansion and against air passenger duty, an environmental levy.